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Peace Economics - From a Killing to a Living Economy
ISBN: 978-82-300-0725-9
Year: 2012

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Peace Economics - From a Killing to a Living Economy

When a nature so generous as ours, and a humankind working so hard share a world with so much environmental degradation, insults to human needs, inequity and inequality, and economic crises, then something basic must be wrong. To blame is not only the economy, but economics as a science, and mainstream economism in particular. As a result we live in a killing economy, grinding people to death in a misery sustained by overt and covert violence, mainly from the USA, blocking any change of the system. The book is a search for a life-enhancing economy. The answer is not found in any one alternative, but in an eclectic economy with space also for a capitalism serving humans, not vice versa.


Johan Galtung
PEACE ECONOMICS: From a Killing to a Living Economy

Table of Contents
PROLOGUE A Vicious Cycle: Inequality-Economic Crisis-Inequality

1. An Introduction to hyper-capitalism
2. The Independent Crisis Cluster: Seven Crisis Factors:
C1: Increasing monetization
C2: Increasing globalization
C3: Increasing privatization
C4: Increasing stock-holder power
C5: Increasing labor productivity
C6: Increasing economist production
C7: Increasing military intervention
3. The Intervening Crisis Cluster: Consumption
4. The Dependent Crisis Cluster: More Misery and Inequality
5. A model for a killing crisis economy
ExKurs I: Black Monday ExKurs II The Politics of Debt

6. An introduction to economism: Seven basic axioms
K1: The economic system can be decoupled from the context
K2: Markets are not for basic needs but for maximum self-benefit
K3: Market competition turns self-benefit into benefit for all
K4: Economic growth assumes monetization of factors and products
K5: There are no upper limits to economic growth
K6: Mathematized optimization serves conflict resolution
K7: We live in the best possible world when steered by the market
7. Economism and occidental deep culture: dualism-manicheism-crisis
8. Economism and occidental deep structure; Individualist-vertical
9. Economism and occidental macro-history: expanding economic power
10. The Swiss cheese model of the economism brain
ExKurs III Externalities

11. One economic cycle: Nature-Production-Consumption
12. Two economies: Real Economy-Finance Economy
13. Three factors: Resources-Labor-Capital/Technology/Management
14. Four basic human needs: Survival-Wellness-Identity-Freedom
15. Five schools in economics: Blue, Red, Pink, Green, Yellow
ExKurs IV Schools and Personality ExKurs V Schools and World Economy

16. An introduction to human economics: Seven basic axioms
L1: Nature-Human-Social-World-Time-Culture-Market are indivisible
L2: Basic needs for all implies lower limits to the economy
L3: More transaction equity for less inequality
L4: Nature-Human-Social-World-Time-Culture-Market synergy
L5: A limited world implies upper limits to economic growth
L6: Creative transcendence serves conflict resolution
L7: Another and better world with human dignity is possible
17. The economic cycle revisited
18. The two economies revisited
19. The production factors revisited
20. A Model for a living economy

Part Five SIX SPACES: Nature-Human-Social-World-Time-Culture
21. Nature: Eco-Cycles as if Eco-balance Matters
22. Humans: Production as if Basic Needs Matter
23. Society: Growth as if Development Matters
24. World: Trade as if Peace Matters
25. Time: Economies as if Sustainability Matters
26. Culture: Economies as if Adequacy matters

EPILOGUE: Neither capitalism, nor socialism: Eclecticism


Johan Galtung

PEACE ECONOMICS: From a Killing to a Living Economy

PROLOGUE A Vicious Cycle: Inequality-Economic Crisis-Inequality

The current economic crisis has many faces. Here is one:

the famous 1974 Black-Scholes equation to find the "correct price" for financial derivatives. Based on partial derivatives over time, this is classical calculus for continuous change; useful within a zone of stability, but not at the edge, the tipping points explored in René Thom's catastrophe theory from 1971. Intellectually this is like calculating the increasing speed of an accelerating car heading for an abyss without warnings. But, with warnings maybe no 1997 Nobel (actually the Swedish State Bank) Prize in Economics?

One year later their company, "Long Term Capital Management", had liabilities of over $100 billion.1 The trade in derivatives is now at $1 quadrillion a year, ten times the industrial economy of the 20th century. Many get rich, but theirs collapsed. Maybe prison would have been more adequate for intellectual sloppiness?

That equation is a part of the closed paradigm of economism. Does it offer a solution, not only for banks and bankers, but for the bottom 99.9%? The 0.1%/99.9% income ratio in USA 2007 was 140; an unbelievable inequality, both cause and effect of the crisis.

Some look at Germany's decreasing unit labor cost 2005-2011 and high employment.2 With top rate quality export products and a single euro currency, their eurozone trade surplus grew from 64 to 140 billion euros 2002-2009. They financed the trade deficit of Greece-Italy-Portugal-Spain-Ireland (GIPSI) with credits from German banks, at the end of 2009 to the tune of 522 billion euros. But they do not invest in GIPSI, only offer higher interest credit for them to pay back the credits, thereby putting the GIPSIs in debt bondage.3 A very dangerous policy, close to a tipping edge, endangering not only the euro and the economy, but the European Union peace project.

Are there alternatives? Of course, stimulus, not bail-out.

A policy of debt forgiveness4, bailing out legitimate creditors, letting other banks collapse, would be better than a debt bondage feeding hatred of the creditor, invoking nazism memories, like Greece does.5 Terrorism next?

We need good debt maps to design intelligent forgiveness policies for households, municipalities, countries, regions. The way out of a complex man-made catastrophe is not to punish the victims.

But we also need political action unlikely to come from the Berlin-Frankfurt-Brussels triangle. One strong formula would be GIPSIs unite, you have only your German banks to lose. They could jointly negotiate better terms, rejuvenate the countryside, increase intra-GIPSI trade, lift themselves out of bondage. But illegitimate, maybe illegal Goldman-Sachs has former employees as prime ministers in Greece and Italy, economy minister in Spain and top of the European Central Bank. That spells finance economy, not real economy.6

Inside victim countries periphery-periphery cooperation could alleviate much suffering from basic needs deficits. Class warfare from above has sent the economic shocks downward to the vulnerable: the women, the older, the younger, the excluded, depriving them of money for food-clothes-housing-health-education. But the old lady in poor health with little money may offer housing to the younger in good health, against cleaning, helping, company. Money may not change hands: service for service, hours for hours, sharing togetherness.

A farmer produces food; student farm hands could pay with culture. Neighboring farms could share sales points directly from producers to consumers. And at a world level a four lane highway through Africa could make Latin America, Africa and Asia revive, and expand, the 500 AD-1500 AD globalized real economy trade. GIPSI countries might link to that South-South-South through North Africa.

Periphery-periphery cooperation counteracts the inequality of hierarchy-exploitation, lifting the bottom up. Legislation is of no avail if the politicians have been bought by Big Capital.

In the giant Chinese 1991-2004 lifting up of 3-400 million, the local community was the unit of development. The five-pronged approach--the public, private, civil society, technical sectors, and a coordinator, in China the party--gave micro credit to small companies dedicated to producing necessities, food-clothes-housing-polyclinics-schools at low cost and price, and to employing the most needy. When their own needs were met, they sold to others at low prices, paid back the credit and entered the economy with some cash in the pockets. Capi -communism, the latter for needs, the former for wants and markets. But the extreme West, the USA, may not bridge this gap intellectually.

Some of the finance economy should be punished, criminalized, like those who give credit far beyond their capital, and those who contract loans far beyond their earning capacity. The worst finance economy dealers should be boycotted and local saving banks favored; global economies should be balanced with more local economies.

The whole focus of economics should be changed from the growth of the market economy to meeting basic needs. From GNP to HDI, the Human Development Index of basic needs satisfaction. The Czech economist Tomás Sedlácekvii7 concludes from the years after communism that egoism is not the alternative; some state regulation is indispensable.8

There will be more approaches and alternatives as more leave the sinking ship of neo-liberal economism. The neo-liberals betrayed us. Had distribution measures come with growth measures like latitude with longitude rising, inequality within and between countries the last decades would have become a key issue and led to policies.9 Rather than the horror of the likely, available, use of war as the ultimate stimulus to get a stagnant inflation-deflation economy running again.

But rational policies run against inegalitarian class society.

The top became super-rich. Those at the bottom sank into misery, illness, death unless lifted up to meet basic needs. The inequality in wealth economically came with inequality in force militarily, in power politically and culturally in values that legitimize power authorizing force protecting the wealth of the super-rich; the US 1% vs 99%.10 That inequality causes crises that cause even more inequality. How?

Of these four the economy defines the discourse. But not the real economy based on land, industry, knowledge, technology; but pure capital, the finance economy. The economists showed a way to rising inequality, like the Black-Scholes11 formula to calculate the value of an option before it matures so that it can be sold and bought at any time. This leads to ever longer chains of buying and selling derivatives (derived from options), on bets, on bets on bets; a finance industry with catastrophic system consequences12, even betting on basic needs, like housing, food13, water, death14; trusting that the demand for necessities is inelastic.

Whenever derivatives change hands a commission is charged. The longer the chain, the higher the unit price--like for drugs, the poor man's derivative--up to a tipping point: a crash with much value to the penultimate seller. For real estate, construction industries, banks and people facing foreclosure: a catastrophe.15

This is not "casino capitalism"; a casino gambler bets his own money for own gains or losses, up to suicide. Derivative economy bets with other peoples' money, pockets the gains, lets others take losses and suicides; even clients they advise, and then bet against.16

A very vicious practice derived from a very vicious theory. There is a link between rising inequality and economic crisis: the less acquisitive power for the bottom 90-99%, the less real economy growth, and the more the top 1% has to rely on finance economy growth.

And, the larger the gap between high growth in the finance economy and little or no in the real economy, the more out of touch with reality the financial objects, the higher the probability of a crisis, quickly as a crash, slowly as a crisis.17

The vicious circle of two-way causation is here: more inequality, more crisis, the more crisis the more inequality. The high up want even more return on their money, the low down are steeped in struggle against misery. Alternatives stand a poor chance. What came first in our predicament, inequality or crisis, is a chicken-egg problem.

But the "roots of inequality" are worth looking at. There will be three perspectives: actor attributes, actor interaction, and system structure. Three independent, but synergizing, sources of inequality.

Attributes. People differ in physical force, perseverance, intelligence, postponement of gratification, risk-taking, empathy, creativity, solidarity, ambiguity tolerance, spirituality; and family background, egoism, greed, stinginess, cheating, lying, narcissism, paranoia, inconsideration, materialism.18 10 positive, 10 negative: those justifying inequality as well deserved emphasize the former, those against the latter, as proof of injustice. Analysts use both.

Interaction. The general formula is "unequal exchange". But how can some people demand much higher pay per hour of work, and much more from an exchange, than others? Two answers will be indicated: the mind-body distinction, and accumulation along interaction chains.

Structure. The general inequity formula is center-periphery interaction; center-center and periphery-periphery are more equitable. The four class resources--wealth, force, power, values--are more available to the top, are convertible, and generate ever more center-periphery distance. In addition, topdogs easily meet, interact with their underdogs; but they are limited by resources, space and time.


1. In the first year it made a 40% profit, having borrowed over 25 times its equity. In 1998 it lost $4.6 billion, and was bailed out by a group of banks supervised by US Federal Reserve. See

2. Floyd Norris, International Herald Tribune, 17 February 2012.

3. Rune Skarstein, the leading Norwegian economist on the crisis, in Klassekampen, 16 March 2011. The CIA World Fact Book lists 190 countries according to current account balance (exchange rates, not purchasing power parity, PPP): No. 1 China, No. 2 Japan; No. 190 The USA: World Debt Bondage I (the US debt to China is $727 billion, to Japan $626 billion, very close, then EU). No. 3 Germany; Nos. 180-185-188-189 4 of the 5 GIPSI, World Debt Bondage II.

Could The USA de-encircle China in return for debt forgiveness?

Could Germany forgive debts in return for better relations?

4. Le Monde Diplomatique, April 2012 lists many cases: in 1868 The USA canceled the debt of the Southern states after the Civil War, in 1898 The USA canceled the Cuban debt to Spanish creditors, in 1918 the Bolsheviks did not recognize the debts incurred by the Czar, in 2003 The USA asked Germany, France and Russia to cancel their demands on Iraq, in 2007 Ecuador declared major portions of their debt to be illegitimate, in 2008 the people of Iceland refused to pay the debts incurred by a private bank to among others Dutch and English creditors. Of course, the debtors take the initiative, not the creditors; wisdom might turn this around.

5. Among the reasons to avoid bail-out is suspension of the punishment aspect of the market, socializing the losses while privatizing the gains, encouraging the finance economy to stay its wrong course, using the real economy to subsidize the finance economy; speeding up the collapse.

The Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, Public Affairs 2010 is one more of those US report, like on the Kennedy murder and on 9/11, leading to more questions than it answers, as Jeff Madrick makes very clear in his review in The New York Review of Books, 28 April 2011: "These regulators are by and large the same agencies that tolerated the excessively risky behavior in the first place. Even if they write effective rules they will face pressure from Wall Street lobbyists..." (p. 70).

6. See Greg Smith, Why I Left Goldman-Sachs: A Wall Street Story, New York: Grand Central Publishing, 2012; following Michael Lewis Liar's Poker on Salomon Bros. in the 1980s. Washington Post, 25 April 2010: "Cheers at Goldman as housing market fell".

7. Der Spiegel, 12/2012.

8. An example: after the fall of communism in Hungary, people had a great urge to be free from oppressive, intrusive government regulations, and the role of government was reduced to a bare minimum. In 1994, there was a shortage of paprika powder, an essential ingredient in most Hungarian dishes. Some small enterprises began to paint unripe paprika red, with poisonous lead paint, to make it look ripe. Dozens of unsuspecting customers had to be hospitalized. People finally realized that it is unreasonable to expect each consumer to buy a small sample of a new food product, send it to a lab to analyze whether it is safe to eat, and then buy more. The government has to test new products for consumption safety for everyone. ( accessed 7 April 2012).

9. There have been some warnings but mainly post hoc analyses, like Raghuram G. Rajan's Fault Lines, pointing to 35 years of increasing inequality in the USA: for every dollar in real income increase 1976-2007 58% went to the richest 1% of the households. Thus, in 2007 the hedge fund manager John Paulson made 3.7 billion dollars, about 74,000 times the median income of US households. More importantly: somebody paid that money. And James Carroll writes (International Herald Tribune, 4 January 2011): "US Census data for 2010 show the widest rich-poor income gap on record. In 1968, the top 20 percent of Americans had about 7 times the income of those living below the poverty line. By 2008, that disparity had grown to about 13. By 2010--more than 14." At the same time the percentage living below half of the poverty line is increasing. And the war economy benefits: "Over-investment in arms leads to their use, period". Andrew Hacker, in "We're More Unequal Than You Think", The New York Review of Books, 23 January 2012: "Internal Revenue Service data show that the best-off 5% of families had 15.9% of the income in 1972, 16.1% in 1985 and 20.0% in 2010 while the Gini index of inequality rose from .359 via .389 to .440. With such massive warnings the diagnosis-prognosis-therapy triangle should have been forthcoming, like it does from competent meteorologists for hurricanes, and competent physicians for pandemics. An incompetent science.

10. The figures are shocking all over. In Spain there are close to 25% living in misery, in "egalitarian Norway" the top 10% are in command of 73% of the wealth, and so on. For an excellent Spanish analysis, see Juan Díez Nicolás, "Poder Político y poder financiero", ABC, 30 August 2012 and for an excellent general analysis see Samir Amin, "Financial collapse, systemic crisis? Illusory answers and necessary answers", World Forum of Alternatives, Caracas, 2008, about "financiarized oligopolies". For Amir's writings see

11. From 1973, with Robert Merton refining the equation to get the prices right--US economists all three--Merton and Scholes got the Swedish State Bank Prize in economics in 1997 after Black's death (not Nobel prize). Maybe debt prison would have been a more adequate response? But, as Charles Ferguson said when accepting the Oscar for Inside Job, nobody has gone to jail for the worst financial crisis since the Great Depression.

12. A system breaks at its weakest points, like Lehman Bros. September 2008, or Madoff, the Ponzi pyramid scheme builder; leading to the temptation to see Lehman Bros.-Madoff as causes, not as consequences precipitating even worse consequences. Incidentally, 6 of the 10 biggest Lehman Bros. creditors were Japanese (International Herald Tribune, 17 September 2008). Naivete about The USA?

From the point of view of catastrophe theory, the system was for some time in a stability zone trading derivatives worth a quadrillion dollars a year by 2007, "10 times the total worth, adjusted for inflation, of all products made by the world's manufacturing industries over the last century" (Ian Stewart, professor of economics, University of Warwick). A gap between finance and real economy was closed by a DJI crash from the 12,000s to the 6,000s in 2008. At the time of writing March-September 2012 the DJI has passed 13,000 again, first time since September 2008.

13. See the excellent article by Jean Ziegler about rice as a finance product in Le Monde Diplomatique, February 2012.

14. See "Vulture Investor Battles For Death-Bet Payoffs", Wall Street Journal, 20 April 2012.

15. In Spain real estate and construction are the sectors most behind in paying their loans, thereby endangering banks. But the real crisis is in the suffering due to foreclosures, so far about 150,000 "mortgage executions", with 238,000 pending (Soledad Gallego-Díaz: "Hell and Good Intentions", El País, English edition 5 March 2012). "Nothing could be done about these evictions, we were told, because it would endanger the stability of the system." Comments unnecessary.

16. Der Spiegel, 5/2009, p. 133, has a photo from a Wall Street demonstration with a message to the bankers ("banksters"?) watching from above: JUMP! You fuckers!

17. As Andrew Hacker puts it: "The crucial fact is that the upward flow of money has reduced the spending power of those lower down, most notably the bottom 60 percent". op.cit.

18. There has been much research on negative attributes highly correlated with becoming rich, such as ego-centrism, self-righteousness, willingness to exploit, lack of empathy. George Monbiot, columnist in The Guardian (in Klassekampen, 17 January 2012), refers to studies by Belinda Board and Katarina Fritzon, and by Paul Babiak and Robert Hare (Snakes in Suits), and Branko Milanovic (The Haves and the Have Nots). An additional factor producing wealth and inequality is simply differences in luck; not ability, they could just as well have been throwing dice.


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